Shawbrook’s £2bn sale shelved over inflation fears and weak markets

Shawbrook’s private equity owners have shelved a plan to sell the UK challenger bank after their hopes of attracting bids worth about £2bn failed to materialise, four people with knowledge of the matter said.

BC Partners and Pollen Street Capital, which bought the lender in 2017, had held talks this year with potential acquirers.

But international investors are wary of buying into the UK at a time of political uncertainty and rising inflation, the people said. Shawbrook specialises in lending to small and medium-sized businesses, which have been hit hard by inflation and soaring energy costs.

Choppy markets and a wider slump in dealmaking have also thwarted the sale, the people said.

It was unclear when the bank will be put back up for sale, one said, with another saying it could take 12 or 18 months before a process starts again. The private equity firms had also been exploring an initial public offering for the lender but have called off that plan too.

The decision to shelve the plans comes as the UK economy is expected to fall into a recession as it grapples with the highest level of inflation in more than four decades.

“If you’re looking at the UK from the outside, you’re pausing now,” one of the people said.

According to consultancy EY, the value of deals in the UK’s financial services sector dropped in the first half to £8.6bn from £10.5bn a year earlier.

The challenger bank was launched in 2011 when Pollen Street, which was at the time part of Royal Bank of Scotland, bought Whiteaway Laidlaw Bank, which was then rebranded as Shawbrook.

It posted a record pre-tax profit of £197mn last year, up from £74mn the previous year. Its loan book grew by a quarter to £8.6bn, while return on tangible equity, a measure of profitability, hit 20.1 per cent.

Pollen Street floated Shawbrook in London in 2015 with a valuation of £725mn.

But Pollen Street decided to take it private again just two years later with BC Partners, for £868mn, after a hostile takeover battle. Private equity groups typically try to sell companies within about five years of buying them. BC bought its stake in the company using a fund it raised in 2017.

The deal came after Shawbrook took a £9mn charge from bad loans that were uncovered in its asset finance arm, which sent shares in the bank tumbling by nearly a third at the time.

Despite the economic headwinds, the challenger bank market is poised for more deal activity following a series of mergers and sales over the past few years.

The Co-operative Bank made a bid for TSB last year, its second takeover offer after an initial failed attempt in 2013.

Shore Capital analyst Gary Greenwood said the gloomy economic backdrop could spur more deal activity.

“A UK recession could put pressure on some of the less well-capitalised and funded banks, which will probably create opportunities for stronger operators to consolidate those with attractive franchises,” he said.

BC Partners, Pollen Street and Shawbrook declined to comment.